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A Tale of Two DTH Players: Understanding the success of Airtel Digital and Videocon D2H

by Shyamanuja Das

In March this year, Videocon D2H, the newest among the six Direct-to-Homes (DTH) service providers in India successfully issued its American Depositary Receipts (ADR). It became only the fifth Indian company and the first among the non-tech/Internet companies to list on NASDAQ.

That’s definitely some news, for the company had filed its Red Herring prospectus with SEBI way back in December 2012. Its decision not to go ahead was seen as a sign that all was not too well with the DTH companies. Media reports that Airtel, India’s largest telco was trying to offload its stake in Digital TV business while Reliance was trying to exit by selling its business to Sun TV had only strengthened that feeling. With the listing—folllowed by upbeat performance reports by both Airtel Digital and Videocon Digital—it seems that phase of doubt and uncertainty is over for the industry, at least, in the short to medium term.

Videocon D2H is promoted by Videocon Industries, an Indian consumer appliances giant, which, is one of the three DTH service providers in India that came with a telecom services background.

Interestingly, Indian DTH service market is split halfway between broadcaster-backed players (those coming from a broadcasting and cable distribution background) and telco-backed players (those with telecom services background). Of late, the latter have cut into the market share of the former.

The rising influence of telco-backed players becomes clear when one looks at the revenue growth numbers of all the players. While broadcaster-backed DTH service providers have grown at a healthy CAGR of 25% in the last three years ending March 2014, telco-backed DTH companies have grown at an impressive 48% CAGR.

But even this difference doesn’t realistically depict the scenario, thanks to an ailing Reliance Digital. If one compares the top two telco-backed players with top-two broadcaster-backed players, the difference becomes clearer. The combined CAGR of Tata Sky and Dish TV (that is excluding Sun Direct) revenues is 26% in the period; but the combined revenues of Airtel Digital and Videocon D2H, in the period, has grown by a whopping 59%.

These two—Airtel Digital and Videocon D2H—are certainly the rising stars of Indian DTH industry.

Is there anything common to the telco-based players? In my earlier post, I argued that it is the soft skills such as direct marketing/brand/customer service experience that is helping telco-backed players.

A closer look at the performance of two top telco-based players, Airtel Digital and Videocon D2H, will give some idea on what is making them successful.

Comparing Airtel Digital and Videocon D2H

Though the top two telco-backed players have certain common attributes—the brand power and experience of dealing directly with customers being the most important ones—the paths that the two companies are charting are proving to be fairly different. A comparison between the two would help one understand in what respect they are similar and in what respect they are not.

Airtel entered DTH business hoping to leverage its brand and experience in customer service. Videocon, which is new in telecom services as well, on the other hand, looked at leveraging its image as an affordable consumer electronics brand.

Airtel and Videocon D2H have multiple commonalities: both of them are telco-backed DTH players; both are strong established brands in their traditional areas; both are seeing healthy growth in DTH business and both are seeing dramatic improvement in operating profits.

Yet, as their results show, they are charting different paths. But before we get into that, here is a comparison of the two across six parameters.

Brand Leverage: Both Airtel Digital and Videocon D2H have been trying to leverage the brands created by their parent companies.

In terms of a head-on-head comparison of brand value, though, Airtel is a clear winner, as it features ahead of Videocon in most brand valuation exercises. Airtel is considered to be one of the top five Indian brands across all industries, in most of the brand surveys.

Though both of them have strong brand presence, they stand for different values. While Airtel stands for customer service and understanding of the customer, Videocon stands for value for money.

Leverage of traditional core competence: The brand value of the company is a function of perception. Beyond a point, it is important to see if the companies have any core business competencies that they can leverage in the DTH business.

Both have tried to leverage tangible business competence they have from their current businesses. While Airtel has used its customer base in mobile to create segmentation and target niche customers, in addition to applying customer services best practices, Videocon has managed to tackle a far severe immediate problem. It has used its group manufacturing capability to procure set top box (STB) at a much lower rate than the market, by using its group manufacturing capability.

According to its draft offer document filed with SEBI, it procures set top boxes from group company, Trends Electronics Ltd (TEL), a contract manufacturer, at averages prices of INR 1350 per SD STBs and INR 1650 per HD STBs—or at half the price of what most other companies pay for these boxes. That is a tremendous advantage on an industry-wide issue. As mentioned elsewhere in the report, Airtel Digital, in one of its response to a TRAI consultation paper on new licenses, unequivocally stated that the industry currently subsidizes customer premise equipment including STBs by upto INR 2,700 to make them affordable.

A look at its operational performance reveals that this has helped Videocon record better operating profitability than Airtel, despite the latter having a better ARPU and financial muscle.

Operational Parameters: Both Airtel Digital and Videocon D2H have been adding subscribers at a healthy pace, though in the recent past, Videocon D2H has clearly overtaken Airtel Digital (and all other players) in terms of net addition to active subscriber base. It has added a whopping 1.73 million active subscribers in FY 13-14. The pace continues this year too with addition of a similar number of subscribers. Airtel, which added 1.06 million subscribers has now been overtaken by Videocon D2H in terms of subscriber base.

ARPU: Airtel has better average revenue per user (ARPU) realization. In the last financial year, it led industry figures with INR 214 per subscriber in 2014-15, while Videocon D2H ARPU stood at INR 198 in the same period.

Financial Parameters: Airtel Digital, which started earlier leads in terms of revenue and ARPU. But Videcon D2H has been catching up rapidly. It has recorded an annual growth of 49.5% in the last three years.

Technology: Both Airtel Digital and Videocon D2H have entered the business with the latest broadcasting technology. But Videocon has more transponder space, which allows it to carry more HD channels. Airtel has been better in managing information technology, especially on the front-end.

Product and Pricing: Here too, Videocon D2H has a wider range- whether it is number of channels, number of packages and pricing range.

It is clear that Airtel started seeing the positive change towards end of 2013 and that trend has continued. Airtel registered

Better ARPU

Healthy rise in customer base

Dramatic improvement in EBITDA

As a result, it decided against strategic stake sales.

For Videcon D2H, which is still trying to play catch-up, the latter half of 2013-14 saw explosive addition of customer base and dramatic rise in profitability.

The performance of the two players as seen in their latest results announced (FY 2014-15) show that they are increasingly charting different paths, though both of them are growing at the cost of the non-telco players. Airtel is going the Tata Sky way of higher ARPU while Videocon has decided to go for aggressive addition of subscribers. In 2014-15, while Airtel added 1.06 million subscribers, Videocon D2H added 1.74 million subscribers. By the end of March 2014, Videocon D2H actually overtook Airtel Digital in terms of subscriber base, though Airtel Digital still leads in terms of revenue.

Both these companies have shown renewed interest and energy in the business, despite the industry issues over license fees and other market issues such as subsidies on set top boxes continuing. Since these two companies have no other interest in media and broadcasting, their renewed interest cannot be because of anything other than the viability of the DTH business itself, on a standalone basis.

This is good news not just for the companies and the DTH industry in India, but also augurs well for the global satellite TV industry, facing threat from internet based distribution technologies such as Internet Protocol Television (IPTV).